SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 29, 1999
ATS MEDICAL, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 000-18602 41-1595629
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(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification No.)
3905 Annapolis Lane, Suite 105, Minneapolis, Minnesota 55447
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(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 553-7736
Not Applicable
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
On December 29, 1999, ATS Medical, Inc. (the "Buyer" or "ATS") and
Sulzer Carbomedics, Inc. (the "Seller") entered into an agreement (the "Carbon
Agreement") pursuant to which, subject to the terms and conditions contained in
the Carbon Agreement, Buyer obtained an exclusive worldwide right and license to
use Seller's trade secrets, know-how and other intellectual property necessary
to manufacture, or have manufactured, use, sell and assemble the ATS pyrolytic
carbon bileaflet mechanical heart valve (the "ATS Valve") and components thereof
(collectively, the "Licensed Technology") and a non-exclusive worldwide right
and license to use the Licensed Technology for other purposes after 2008. The
Carbon Agreement also contains a commitment by Seller to assist and supervise
Buyer in establishing a pyrolytic carbon component production facility in
Minnesota. Seller has been the exclusive supplier of carbon components used in
the ATS Valve since [1990]. Under the terms of the Carbon Agreement, Buyer is
required to pay Seller a license fee of $41,000,000, consisting of eight (8)
annual installment payments, subject to deferral if certain milestones are not
satisfied. The initial installment payment of $5,000,000, which was due upon
execution of the Carbon Agreement, came from cash on hand. Upon execution of the
Carbon Agreement, the Option Agreement dated September 24, 1990 between Buyer
and Seller was terminated.
On December 29, 1999, Buyer and Seller also entered into an amendment
(the "Supply Contract Amendment") to their OEM Supply Contract dated September
24, 1990. The Supply Contract Amendment provides for a reduction in the minimum
number of carbon components that Buyer is required to purchase from Seller each
year and a reduction in the purchase price of such components. In addition, on
December 29, 1999, Buyer and Seller entered into an amendment (the "License
Amendment") to their License Agreement dated September 24, 1990. Each of the
Carbon Agreement, the Supply Contract Amendment and the License Amendment was
the product of arms' length negotiations by the parties.
The Carbon Agreement, Supply Contract Amendment and License Amendment
are filed as Exhibits 99.1, 99.2 and 99.3 to this report, respectively.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired
Not applicable.
(b) Pro Forma Financial Information
Not applicable.
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(c) Exhibits
Exhibit No. Description
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*99.1 Carbon Agreement by and between Sulzer Carbomedics, Inc. and
ATS Medical, Inc., dated December 29, 1999.
*99.2 Amendment 7 to OEM Supply Contract by and between Sulzer
Carbomedics, Inc. and ATS Medical, Inc., dated December 29,
1999.
99.3 Amendment 2 to License Agreement by and between Sulzer
Carbomedics, Inc. and ATS Medical, Inc., dated December 29,
1999.
*Portions of the Exhibit have been omitted pursuant to a request for
confidential treatment, which has been submitted separately to the Securities
and Exchange Commission in accordance with Rule 24b-2 of the Securities Exchange
Act of 1934.
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 12, 2000 ATS MEDICAL, INC.
/s/ John H. Jungbauer
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John H. Jungbauer
Chief Financial Officer
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EXHIBIT 99.1
CARBON AGREEMENT
THIS AGREEMENT ("Agreement") is effective as of December 29, 1999, by
and between SULZER CARBOMEDICS, INC. ("CMI") and ATS MEDICAL, INC. (formerly
Helix BioCore, Inc.) ("ATS").
WHEREAS, CMI and ATS previously entered into that certain License
Agreement dated as of September 24, 1990, as amended (the "License Agreement"),
that certain O.E.M. Supply Agreement dated as of September 24, 1990, as amended
(the "O.E.M. Supply Agreement") and that certain Option Agreement dated as of
September 24, 1990, as amended (the "Option Agreement") (the License Agreement,
the O.E.M. Supply Agreement and the Option Agreement collectively the "ATS
Agreements"), and
WHEREAS, ATS desires to acquire a license from CMI to use certain CMI
proprietary technology and CMI is willing to grant such a license, all upon the
terms and conditions contained in this Agreement, and upon ATS and CMI entering
into Amendment No. 2 of the License Agreement and Amendment No. 7 to O.E.M.
Supply Agreement (collectively the "Amendments") attached hereto as Attachments
Nos. 1 and 2, respectively.
NOW, THEREFORE, in consideration of the premises and the faithful
performance of the mutual covenants and obligations contained in this Agreement
and the ATS Agreements as amended in accordance with the Amendments, the parties
agree as follows:
Article 1.0 DEFINITIONS
1.1 Licensed Product. As used herein, "Licensed Product" shall mean a specific
configuration of a bileaflet heart valve prosthesis embodying at least one of
the claims of U.S.P.N. 4,692,165 (hereinafter called the "Patent") and having
substantially flat leaflets and opposed pivot posts on an interior surface of an
annular body of said heart valve, said pivot posts comprising spherical surface
portions, each pivot post being receivable in a notch in a leaflet or
constituent parts for such a bileaflet heart valve prosthesis. The Licensed
Product will comprise leaflets as shown in Fig. 17 of the Patent and pivots as
shown in Fig. 25 of the Patent.
1.2 Licensed Technology. As used herein, "Licensed Technology" shall mean all
trade secrets, know-how and other intellectual property necessary to
manufacture, or have manufactured, use, sell and assemble a Licensed Product and
any components thereof.
Article 2.0 LICENSE
2.1 Scope of License. Subject to the payment of the fees set forth herein, CMI
hereby grants to ATS an exclusive worldwide right and license to use the
Licensed Technology (subject to rights, if any, reserved by General Atomic) to
make, use, sell and assemble the Licensed Product and components thereof and a
non-exclusive worldwide right and license to use the Licensed
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Technology for any other purpose. Notwithstanding the foregoing, ATS shall not
develop or produce any component parts or assemblies for any mechanical heart
valve except the Licensed Product, improvements and modifications thereon and
any other heart valve owned by ATS or one of its affiliates, until January 1,
2009, and shall not develop, manufacture, or produce the CPHV valve or any
improvements and modifications thereon. CMI shall not develop or produce any
component parts or assemblies for the Licensed Product, improvements and
modifications thereon other than for sale to ATS. This Agreement shall not
confer any right, title or interest in or to any letters patent or patent
application other than those referred to herein. The foregoing right and license
expressly excludes the right to grant sublicenses to any non-affiliate of ATS
but includes the right to sublicense such right and license to any entity
controlling, controlled by or under common control with ATS.
2.2 Regulatory Approvals. ATS will have the sole obligation to obtain any
approvals necessary for manufacture and marketing of the Licensed Product using
the Licensed Technology. CMI hereby grants to ATS the right to refer any
domestic or international regulatory body, including without limitation the FDA,
to CMI's regulatory filings and any domestic or international dossier,
applications or master files for the Licensed Technology necessary to
demonstrate the equivalence of the carbon produced using the Licensed Technology
to the carbon (i.e., Pyrolite(R) carbon) employed by ATS prior to the execution
of this Agreement.
2.3 Production Line. The Licensed Technology requires a state-of-the-art
component manufacturing production line, which will be independent of CMI,
whether accomplished internally by ATS or by qualified outside vendors, and will
be substantially equivalent to Licensor's own current component manufacturing
production line (the "Production Line"), to produce the Licensed Product. The
Production Line shall be built and become operational within the anniversary
milestones set forth in Section 2.5 below. Accordingly, CMI and ATS shall have
the following respective responsibilities:
(a) At ATS's expense, CMI shall provide ATS with a basic space
plan and other requirements ("Space Plan") for a suitable site
(the "Site") for the Production Line, provided that the
expense covered by ATS shall be the incremental expense of
producing the Space Plan for ATS and shall not include
development costs previously incurred by CMI;
(b) At its own expense and in consultation with CMI, ATS shall
lease or purchase the Site in conformity with the Space Plan;
(c) At ATS's expense, CMI shall provide ATS with requirements and
specifications for equipment, materials, utilities and such
other configuration and installation details ("Line
Requirements") as may be necessary for the Production Line,
provided that the expense covered by ATS shall be the
incremental expense of producing the Line Requirements for ATS
and shall not include development costs previously incurred by
CMI;
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(d) At its own expense and in consultation with CMI, ATS shall
make (or cause to be made) the Site ready for construction and
installation of the Production Line;
(e) At its own expense and in consultation with CMI, ATS shall
purchase, lease or otherwise obtain the equipment, materials,
utilities etc. in conformity with the Line Requirements and
cause such items to be delivered or made available at the
Site;
(f) At the expense of and in consultation with ATS, CMI shall
supervise the construction and installation of the Production
Line, subject to appropriate access, support and utility
connections as reasonably necessary at the Site;
(g) At the expense of and in consultation with ATS, CMI shall
supervise the acceptance and qualification testing of the
Production Line upon completion of the construction and
installation and shall provide a good faith opinion in writing
to ATS that the Production Line is ready for commercial
production of the Licensed Product in conformity to applicable
FDA "good manufacturing practices/quality system requirements"
("GMP/QSR") guidelines; in the event that the Production Line
fails to obtain any required FDA GMP/QSR approvals, CMI shall
provide such further supervision of acceptance and
qualification testing for the Production Line as is necessary
to achieve such approvals; and
(h) At the expense of and in consultation with ATS, CMI shall
provide on-site supervision of the Production Line's initial
start-up operation until such line has run for at least one
three consecutive month period producing the Licensed Product
and components thereof using the Licensed Technology at a rate
of 10,000 valve sets per year and with target yields and
direct labor hours equal to the lesser of 1.33 times the 1999
average yields and direct labor hours or 1.15 times the 2001
average yields and direct labor hours of CMI producing
components for the Licensed Product. On or before February 1,
2000 CMI shall provide to ATS its 1999 average yields and
direct labor hours for producing components for the Licensed
Product. Notwithstanding the foregoing, CMI shall provide
on-site supervision of the Production Line's initial start-up
operation until such line is producing Licensed Product with
physical properties (including specifically mechanical
properties, chemical properties and surface characteristics)
statistically equivalent to those of CMI's Pyrolite(R)carbon
components for the Licensed Product as specified in the FDA
Guidance Document for Pyrolytic Carbon.
CMI shall assign key personnel to perform the services described above
as well as such additional personnel as are reasonably necessary to fulfill
CMI's obligations hereunder.
2.4 Technology Transfer. In its transfer of the Licensed Technology to ATS, CMI
shall provide such reasonable training and documentation to ATS to enable ATS to
obtain ISO 9002 certification and FDA GMP/QSR approval of the Production Line
and the Licensed Product
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made thereon. To the extent that CMI documentation ("CMI Documentation") for the
Licensed Technology is to be transferred hereunder, CMI shall provide one (1)
legible hard copy of each manual or other documentation package or the
electronic files thereof in Microsoft Word or Excel format or such other
computer-aided design data used by CMI to manufacture Licensed Product in a
format readable using commercially available software. CMI hereby grants ATS a
non-exclusive, royalty-free, worldwide license to make, distribute and use such
internal copies and derivative works of the CMI Documentation as are reasonably
necessary to use the Licensed Technology for the purposes hereof, provided each
such copy or derivative work shall retain any CMI copyright, trademark or other
proprietary notices as are contained in the original version thereof, and
provided further that ATS agrees to pay any license fees or additional software
development costs in connection herewith. Within ninety (90) days of the
effective date of this Agreement, the parties shall adopt a mutually acceptable
training and technology transfer plan to enable selected ATS managers, engineers
and other staff to acquire and master the Licensed Technology, including, where
appropriate, a system for CMI to "train the trainers."
After the third anniversary date of this Agreement, CMI may notify ATS in
writing that it is ready to initiate its transfer to ATS of the Licensed
Technology, equipment and machining specifications and operating capability to
permit ATS to develop the capability to internally machine graphite parts (the
"Graphite Capability"), machine pyrolytic carbon coated parts (the "Pyrolytic
Carbon Capability"), and develop its own tooling parts (the "Tooling
Capability") (the date of such notification respectively referred to herein as
the "Graphite Notice Date", the "Pyrolytic Carbon Notice Date" and the "Tooling
Notice Date"). ATS shall notify CMI in writing within thirty (30) business days
of the Graphite Notice Date, the Pyrolytic Carbon Notice Date and the Tooling
Notice Date, as applicable, whether it intends to proceed to develop the
Graphite Capability, the Pyrolytic Carbon Capability, or the Tooling Capability,
as applicable (respectively the "Graphite Decision Date", the "Pyrolytic Carbon
Decision Date"and the "Tooling Decision Date"). If ATS fails to provide such a
notification, such action shall be deemed to be a decision not to develop such
capability.
After the third anniversary date of this Agreement, ATS may notify CMI in
writing that it is ready to receive transfer to ATS of the Graphite Capability,
the Pyrolytic Carbon Capability, and the Tooling Capability. CMI will use its
best efforts to commence transfer of such capability within six (6) months after
receipt of such notice from ATS.
2.5 License Fees. In consideration of the right and license granted herein, ATS
shall pay CMI as its sole and exclusive compensation therefor a total license
fee of forty-one million dollars ($41,000,000) ("License Fee"). ATS shall pay
the License Fee in eight (8) installments as follows:
1: five million dollars ($5,000,000) upon the parties' execution
of this Agreement;
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2: three million dollars ($3,000,000) on the later of (i) the
first anniversary date of this Agreement or (ii) the date six
(6) months after the date on which CMI has provided to ATS***;
3: five million dollars ($5,000,000) on the later of (i) the
second anniversary date of this Agreement or (ii) the date on
which ATS, under CMI supervision, *** is delayed beyond such
second anniversary due to ATS' failure to use its best efforts
to complete construction and installation of the Production
Line by June 30, 2001, in which case this payment shall be
payable on such second anniversary;
4: five million dollars ($5,000,000) on the later of (i) the
third anniversary date of this Agreement, or (ii) the date on
which ATS has ***;
5: five million dollars ($5,000,000) on the later of (i) the
fourth anniversary date of this Agreement or (ii) the date on
which ATS has the capacity on the Production Line ***;
6: six million dollars ($6,000,000) on the later of (i) the fifth
anniversary date of this Agreement, (ii) ***, or (iii) ***;
7: six million dollars ($6,000,000) on the later of (i) the sixth
anniversary date of this Agreement, (ii) *** or (iii) ***;
8: six million dollars ($6,000,000) on the later of (i) the
seventh anniversary date of this Agreement, (ii) *** or (iii)
***.
2.6 Expenses. In addition to the License Fee, for all items specified in Section
2.3 above where ATS is to bear the expenses of CMI, ATS shall reimburse CMI for
the following:
(a) CMI employee time spent on the Production Line project, billed
at a rate of ***/hour for employees at or above manager level
or engineers and ***/hour for all other employees (including
travel time between their normal work location and the Site);
(b) reasonable and customary CMI employee travel costs associated
with the Production Line project, including lodging, leased
automobile expenses, other than gasoline, and coach airfare,
as appropriate;
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*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24B-2 of the Securities
Exchange Act of 1934.
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(c) for each CMI employee working at the Site, a mutually agreed
per diem amount per day to cover food, parking, gasoline,
laundry, telephone and entertainment;
(d) other reasonable, customary and incidental out-of-pocket
expenses incurred by any CMI employee working at the Site,
other than personal expenses covered by the per diem in clause
(c) above; and
(e) costs for any equipment or materials procured by CMI for use
at or installation on the Production Line, subject to ATS'
prior approval thereof for any expenditures in excess of $500
per item; provided that any such equipment or materials shall
become the sole property of ATS upon reimbursement in
accordance with this clause (e).
CMI shall submit to ATS written invoices for any of the above expense
items, together with copies of any underlying invoices or statements as
requested by ATS, and ATS shall pay such invoices within thirty (30) days after
receipt thereof.
2.7 Site Support. During the construction, testing and start-up phases of the
Production Line project, at no charge to CMI, ATS shall furnish CMI personnel
working at the Site with reasonable offices, office equipment, telephone,
computer and facsimile equipment and incidental photocopying and other office
support.
2.8 Facility Rules; Worker's Compensation and General Liability Insurance. CMI
employees working at the Site shall observe and honor any reasonable ATS
facility rules generally applicable to ATS employees at such location. CMI shall
maintain its own worker's compensation and general liability insurance
applicable to all CMI employees working at the Site.
2.9 Non-compete/Non-solicitation of Employees. ATS and CMI shall honor each
others' non-compete agreements with their respective employees. Until two (2)
years after the earlier of completion of the milestone payments described in
section 2.5 or termination of this Agreement, CMI shall not, without the prior
written approval of ATS, directly or indirectly, (i) solicit, induce, or attempt
to solicit or induce any employee of ATS to leave ATS or (ii) hire any employee
of ATS (excluding sales and marketing employees), and ATS shall not, without the
prior written approval of CMI, directly or indirectly, (i) solicit, induce, or
attempt to solicit or induce any employee of CMI to leave CMI or (ii) hire any
employee of CMI (excluding sales and marketing employees), provided that a
general advertisement in the ordinary course of business shall not be deemed a
solicitation prohibited by this Section 2.9.
Article 3.0 IMPROVEMENTS; PATENTS
3.1 Sole Improvements. ATS shall own all right, title and interest in and to any
enhancements, developments or improvements ("Improvements") that ATS may
independently make related to or arising out of its use of the Licensed
Technology. ATS may, at its own expense, file one or more patent applications
for any Improvements in the United States or any
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foreign country. CMI shall own all right, title and interest in and to any
Improvements that CMI may independently make related to or arising out of its
use of the Licensed Technology.
3.2 Joint Improvements. The parties shall co-own any right, title and interest
in and to any Improvements that are jointly made related to or arising out of
ATS' use of the Licensed Technology. The parties shall mutually agree which
party shall file any patent applications for such jointly discovered
Improvements and the allocation of the expenses therefor. Each party may
independently exploit any such co-owned Improvement without accounting to the
other party but may, by separate written agreement, license or sell some or all
of its rights therein to the other party.
3.3 CMI Retained Rights. Notwithstanding the foregoing, ATS shall not own any
right, title or interest in, and may not file any patent application on, the
Licensed Technology itself or any part of it.
3.4 License of Rights.
(a) If ATS elects not to file or to discontinue the prosecution or
maintenance of any patent or patent application related to an
Improvement independently made by ATS, it shall give CMI
written notice thereof. CMI shall then have the right, but not
the obligation, to initiate or continue such prosecution or
maintenance at its own expense. If CMI elects to initiate or
continue such prosecution or maintenance, ATS shall assign
such patent or patent application to CMI, and CMI shall grant
to ATS a royalty-free, nonexclusive license for such
Improvement.Thereafter, CMI may continue such prosecution or
maintenance at its own expense, subject to the retained
license of ATS.
(b) If ATS elects not to file or to discontinue the prosecution or
maintenance of any patent or patent application related to a
jointly developed Improvement, ATS shall give CMI written
notice thereof. Upon ATS's written notice to CMI, CMI shall
then have the right, but not the obligation, to initiate or
continue such prosecution or maintenance at its own expense.
If CMI elects to initiate or continue such prosecution or
maintenance, ATS shall assign such patent or patent
application to CMI, and CMI shall grant to ATS a royalty-free,
nonexclusive license for such Improvement. Thereafter, CMI may
continue such prosecution or maintenance at its own expense,
subject to the retained license of ATS.
(c) If CMI elects not to file or to discontinue the prosecution or
maintenance of any patent or patent application related to an
Improvement independently made by CMI, CMI shall give ATS
written notice thereof. ATS shall then have the right, but not
the obligation, to initiate or continue such prosecution or
maintenance at its own expense. If ATS elects to initiate or
continue such prosecution or maintenance, CMI shall assign
such patent or patent application to ATS, and ATS shall grant
to CMI a royalty-free, nonexclusive license for such
Improvement.
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Thereafter, ATS may initiate or continue such prosecution or
maintenance at its own expense, subject to the retained
license of CMI.
(d) If CMI elects not to file or to discontinue the prosecution or
maintenance of any patent or patent application related to a
jointly developed Improvement, CMI shall give ATS written
notice thereof. Upon CMI's written notice to ATS, ATS shall
then have the right, but not the obligation, to initiate or
continue such prosecution or maintenance at its own expense.
If ATS elects to initiate or continue such prosecution or
maintenance, CMI shall assign such patent or patent
application to ATS, and ATS shall grant to CMI a royalty-free,
nonexclusive license for such Improvement. Thereafter, ATS may
continue such prosecution or maintenance at its own expense,
subject to the retained license of CMI.
Article 4.0 TERM AND TERMINATION
4.1 Commencement. This Agreement shall commence on the date first hereinabove
set forth and shall remain in effect unless and until terminated under Section
4.2, 4.3 or 4.4 below.
4.2 Termination for Material Breach. If either party breaches any material term
of this Agreement, the non-breaching party shall give written notice thereof to
the breaching party. In the event of such a breach by ATS, which breach is not
cured within ninety (90) days of such notice, then the rights and obligations of
the parties under this Agreement shall be suspended for a period of up to two
(2) years from the end of such ninety-day notice period (a "Suspension Period").
During a Suspension Period, Amendment No. 7 to the O.E.M. Supply Agreement shall
be suspended as well and the O.E.M. Supply Agreement as in effect immediately
prior to the signing of this Agreement shall be in full force and effect. If at
any time during a Suspension Period ATS is able to cure its default under this
Agreement, then the Suspension Period shall end and the rights and obligations
of the parties under this Agreement shall once again be in full force and effect
with appropriate adjustments made to the dates appearing herein to reflect the
suspension of the Agreement during the Suspension Period. If ATS is unable to
cure its default under this Agreement prior to the expiration of two (2) years
from the end of a ninety-day notice period, then this Agreement shall be
terminated, any installment payments of the License Fee previously made under
Section 2.5 may be retained by CMI and ATS shall reimburse CMI for all expenses
under Section 2.6 to the effective date of such termination.
In the event of such a breach by CMI, which breach is not cured within ninety
(90) days of ATS' notice of such breach, then CMI shall have one year during
which to cure such breach, provided that during such year the price paid by ATS
for Equivalent Valve Sets shall be that specified in Section 5(b)(ii)(A) of the
O.E.M. Supply Agreement as amended by Amendment No. 7. In the event that CMI is
unable to cure such breach prior to the satisfaction of the milestone described
in Section 2.5(5)(ii) of this Agreement, then the rights and obligations of the
parties under Sections 2.3 and 2.5 through 2.9 of this Agreement shall be
terminated, the license granted ATS under Section 2.1 shall be deemed fully
paid-up and irrevocable, any installment payments of the License Fee previously
made under Section 2.5 shall be refunded to ATS and ATS shall not be required to
reimburse CMI for any expenses not previously reimbursed under Section 2.6. In
the
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event that CMI is unable to cure such breach after the satisfaction of the
milestone described in Section 2.5(5)(ii) of this Agreement, then the rights and
obligations of the parties under Sections 2.3 and 2.5 through 2.9 of this
Agreement shall be terminated, the license granted ATS under Section 2.1 shall
be deemed fully paid-up and irrevocable, any installment payments of the License
Fee previously made under Section 2.5 shall not be refunded to ATS and ATS shall
reimburse CMI for all expenses under Section 2.6 incurred prior to the delivery
by ATS of such notice of breach.
4.3 Termination for ATS Insolvency. This Agreement may be terminated by CMI
effective immediately upon written notice (i) upon the institution by ATS of
insolvency, receivership or bankruptcy proceedings or any other proceedings for
the settlement of ATS' debts under United States or state law, (ii) upon the
institution against ATS of insolvency, receivership or bankruptcy proceedings or
any other proceedings for the settlement of ATS' debts under United States or
state law which proceeding is consented to or acquiesced in by ATS or shall
remain for 90 days undismissed, (iii) upon ATS' making an assignment for the
benefit of creditors, or (iv) upon ATS' dissolution or ceasing to do business.
4.4 Termination for ATS' Exit of the Mechanical Heart Valve Business. If ATS
determines to exit the mechanical heart valve business, then ATS may terminate
this Agreement at any time after the third anniversary of the date of this
Agreement by giving six (6) months written notice thereof to CMI. In the event
of such termination, the license granted under Section 2.1 shall be terminated,
CMI may retain any installment payments of the License Fee previously made under
Section 2.5 and ATS shall reimburse CMI for all expenses under Section 2.6 to
the effective date of termination.
4.5 Return of CMI Documentation. Upon termination of the license granted under
Section 2.1 pursuant to Section 4.2, 4.3 or 4.4, ATS shall promptly return or,
upon the written request by CMI, destroy any copies of the CMI Documentation
except for one (1) archival copy thereof as may be required to comply with
applicable FDA GMP/QSR requirements for any Licensed Product made and sold by
ATS. ATS shall give CMI a written certification of such return or destruction.
4.6 WIP and Inventory. In the event of a termination of the license granted
under Section 2.1 due to a breach by ATS under Section 4.2 or 4.4, ATS shall
make an orderly shut-down of the Production Line and sell or otherwise dispose
of such WIP and any finished Licensed Product in inventory.
Article 5.0 INFRINGEMENT
If ATS has reason to believe that any letters patent licensed hereunder
to ATS are infringed by a third party, ATS shall immediately notify CMI of such
possible infringement, including the basis therefor. If, after 90 days, CMI
elects not to pursue an infringement action against the third party, ATS shall
have the right, but not the obligation, to prosecute any such action in the name
of CMI but at its own expense. If ATS elects to pursue such an infringement
action, CMI shall execute documents and render such cooperation to ATS as may be
reasonably
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requested, including agreeing to be named as a co-plaintiff if necessary to
establish standing to pursue such action. ATS shall retain all proceeds obtained
upon the conclusion or settlement of any such legal action undertaken at its own
expense. ATS shall, however, reimburse CMI for reasonable attorney's fees and
expenses incurred in providing such cooperation, including costs associated with
gathering and copying documents, and other costs associated with discovery. CMI
may also elect to participate in such action at its own expense.
Article 6.0 INDEMNIFICATION
6.1 Products Liability. ATS agrees to be solely responsible for and to defend
and indemnify CMI and to hold it harmless from any and all demands, claims,
causes of action, or damages including attorneys fees and expenses, arising out
of, resulting from or related to the use of Licensed Technology and any products
manufactured, sold or distributed by ATS. This obligation will survive
termination of this Agreement and will be applicable to all claims regardless of
the legal theory on which they are based including, but not limited to, claims
of negligence, breach of warranty, strict liability, and violation of statute or
government regulations.
6.2 Intellectual Property. CMI shall defend and indemnify ATS, its officers,
directors, employees and agents and hold the same harmless from any and all
demands, claims, causes of action, or damages (including reasonable attorneys
fees and expenses), arising from any claim(s) that the Licensed Technology (or
any portion thereof) infringes the intellectual property rights (including any
patent, copyright, trademark or trade secret) of any third party.
6.3 Injury or Death. CMI shall defend and indemnify ATS, its officers,
directors, employees and agents and hold the same harmless from any and all
demands, claims, causes of action, or damages (including reasonable attorneys
fees and expenses), arising out of, resulting from or related to any injury,
death or damage to property caused solely by the negligence, reckless conduct or
intentional misconduct of any CMI employee at the Site not including any claims
of product liability.
ATS shall defend and indemnify CMI, its officers, directors, employees and
agents and hold the same harmless from any and all demands, claims, causes of
action, or damages (including reasonable attorneys fees and expenses), arising
out of, resulting from or related to any injury, death or damage to property
caused solely by the negligence, reckless conduct or intentional misconduct of
any ATS employee at the Site.
6.4 Procedure. A party seeking indemnification ("Indemnified Party") under this
Article 6.0 shall give written notice thereof to the indemnifying party
("Indemnifying Party"), including the nature and extent of the legal claim
giving rise thereto. The Indemnified Party shall give such cooperation (at the
expense of the Indemnifying Party) as is reasonably requested by the
Indemnifying Party, which shall control the defense and settlement thereof in
its sole discretion. The Indemnified Party may participate in such legal action
at its own expense but shall not settle or compromise such action without the
written consent of the Indemnifying Party. If and to the extent that the legal
counsel selected by the Indemnifying Party is subject to a material conflict of
interest under the applicable rules of professional conduct in the defense of
both the
10
<PAGE>
Indemnifying Party and the Indemnified Party, the Indemnified Party shall not be
required to waive such conflict and the Indemnifying Party shall promptly engage
and pay for separate legal counsel to represent the Indemnified Party.
6.5 Survival. The indemnification obligations set forth in this Article 6.0
shall survive termination of this Agreement and will be applicable to all claims
regardless of the legal theory on which they are based including, but not
limited to, claims of negligence, breach of warranty, strict liability or
violation of any applicable statute or government regulation.
Article 7.0 NOTICES
7.1 Notices. Any notice to be given under this Agreement shall be sent by
personal delivery, delivery by a recognized courier service, electronically
confirmed facsimile, or certified mail, postage prepaid, to the following
addresses:
CMI: Sulzer Carbomedics, Inc.
1300 East Anderson Lane
Austin, Texas 78752
Attn.: President
Facsimile number: 512/435-3395
With a copy to: Sulzer Medical USA Inc.
3 East Greenway Plaza, Suite 1600
Houston, Texas 77046-0391
Attention: Vice President and General Counsel
Facsimile number: 713/561-6380
ATS: ATS Medical, Inc.
3905 Annapolis Lane
Minneapolis, Minnesota 55447
Attn.: President
Facsimile number: 612/553-1492
Any such notice given shall be effective upon its receipt by the notified party.
7.2 Change of Address. Either party may change its address by giving at least
ten (10) days prior written notice thereof to the other party.
Article 8.0 MISCELLANEOUS
8.1 Assignment. Neither party may assign or sublicense this Agreement without
the prior written consent of the other party, which consent may be withheld
absolutely in the other party's sole discretion. Notwithstanding, either party
may freely assign this Agreement to any entity controlling, controlled by or
under common control with such party or in connection with the acquisition of
such party or all or substantially all of that portion of its business or assets
to
11
<PAGE>
which this Agreement pertains, provided, in such case, the acquiring party
agrees in writing to be bound by all the terms and conditions hereof and gives
notice thereof to the non-acquired party.
8.2 Confidentiality. The Licensed Technology is the confidential and proprietary
property of CMI. ATS shall hold the Licensed Technology in confidence and shall
afford it the same protection that ATS uses for protecting its own confidential
and proprietary information ("ATS Information"). In the course of establishment
and operation of the Production Line, ATS may also disclose certain ATS
Information to CMI, and CMI shall hold any ATS Information in confidence and
shall afford it the same protection that CMI uses for protecting its own
confidential and proprietary information. Notwithstanding the foregoing, the
following shall not be considered confidential and proprietary information of
either party: (a) information which is in the public domain through no fault or
inaction of the receiving party; (b) information already known to the receiving
party without obligation to the disclosing party and prior to its receipt from
the disclosing party; (c) information independently developed by the receiving
party without the use or or reliance on any confidential and proprietary
information from the disclosing party; or (d) information which is required to
be disclosed by law.
8.3 Whole Agreement; Amendment. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof. No waiver,
alteration or modification of any of the provisions hereof shall be binding
unless in writing and signed by the parties hereto. No waiver shall be implied
or continuing.
8.4 Relationship. Nothing in this Agreement shall be deemed or construed to
constitute or create between the parties a partnership, joint venture or agency.
8.5 Headings. The headings or captions of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed a part hereof or used in
the construction or interpretation hereof.
8.6 Governing Law. This Agreement shall be governed by the laws of the State of
Texas, excluding its choice of law rules.
8.7 Legal Effect. If any provision of this Agreement is rendered unlawful or
invalid because of any existing or subsequently enacted law or by a decree or
order of a court of last resort, the remaining provisions shall continue in full
force and effect and shall be interpreted to achieve the original purpose of the
parties to the maximum extent possible.
8.8 Attorneys Fees. If a legal action is initiated by either party regarding the
interpretation or enforcement of this Agreement, the prevailing party therein
shall be entitled to its reasonable attorneys fees and costs.
8.9 Option Agreement. The Option Agreement dated September 24, 1990, as amended
December 16, 1993, between the parties hereto shall terminate effective as of
the execution of this Agreement.
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8.10 Public Announcement. Neither CMI nor ATS will make any public announcement
or disclosure regarding this Agreement without the prior consent of the other
party, except any such announcement or disclosure that may be required by rule,
regulation or law, in which case the party required to make the announcement or
disclosure will, if reasonably practicable, allow the other party at least 24
hours to comment on such announcement or disclosure in advance thereof.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered as of the date first hereinabove set forth.
SULZER CARBOMEDICS, INC. ATS MEDICAL, INC.
By: /s/ Terry Marlatt By: /s/ Richard W. Kramp
-------------------------------- --------------------------------
Terry Marlatt, President Richard W. Kramp,
President/COO
13
EXHIBIT 99.2
AMENDMENT 7 TO OEM SUPPLY CONTRACT
This Amendment 7 is entered into as of December 29, 1999, by and
between SULZER CARBOMEDICS INC. ("CMI"), a corporation organized and existing
under the laws of the State of Delaware, with its principal office located at
1300 East Anderson Lane, Austin, Texas 78752 and ATS MEDICAL, INC. ("ATS"), a
corporation organized and existing under the laws of the State of Minnesota with
its principal office located at 3905 Annapolis Lane, Minneapolis, Minnesota.
RECITALS:
CMI and ATS entered into an OEM supply contract dated September 24,
1990, as amended November 1, 1991, June 19, 1992, October 15, 1992, December 16,
1993, September 1, 1994 and February 19, 1999 (the "OEM Supply Contract"). The
parties now desire to further amend that Agreement.
THEREFORE, in consideration of the mutual promises set forth in this
Amendment and other good and valuable consideration, the parties agree to the
following terms.
TERMS:
1. Page 1 of Exhibit B of the OEM Supply Contract, as amended by
Amendment 4 to that Contract, and pages 2(a) and 2(b) of
Exhibit B as amended by Amendment 1 to that Contract, are
hereby deleted in their entirety and the
<PAGE>
attached pages 1 and 2 of Exhibit B, dated December 29, 1999,
are substituted in their place.
2. The second sentence of Section 2(a) is hereby deleted in its
entirety and replaced with the following sentence:
Thereafter the minimum purchase requirement each year will be
the number of Component Sets set forth on Exhibit B.
3. Section 5(b) of the OEM Supply Contract is hereby amended to
add the following to the last sentence thereof:
; provided, however, that, if and to the extent that the
Manufacturer's order exceeds the 10% maximum variation
limitation because one or more of the milestones contained in
Section 2.5 of the Carbon Agreement have not been reached in a
timely manner, then (i) CMI may not reject that portion of the
order which exceeds 110% of the preceding order, and (ii)
notwithstanding the prices stated on Exhibit B to this
Agreement,(A)if one or more of the milestones have not been
reached in a timely manner due primarily to CMI's fault, CMI
will be obligated hereunder to supply any valve sets ordered
in excess of 110% of the preceding order at a price of $600
per equivalent valve set, adjusted for inflation in accordance
with this Exhibit B, (B)if one or more of the milestones have
not been reached in a timely manner due primarily to ATS'
fault, CMI will be obligated hereunder to supply any valve
sets ordered in excess of 110% of the preceding order at a
price of $1000 per equivalent valve set, adjusted for
inflation in accordance with this Exhibit B, and (C) if one or
more of the milestones have not been met due to the joint
fault of CMI and ATS, CMI will be obligated hereunder to
supply any valve sets ordered in excess of 110% of the
preceding order at a price of
<PAGE>
$800 per equivalent valve set, adjusted for inflation in
accordance with this Exhibit B.
4. Section 17 of the OEM Supply Contract is amended to add a
paragraph (g) that reads as follows:
In the event of any dispute or controversy regarding this OEM
Supply Agreement, the prevailing party shall be entitled to
its reasonable attorney's fees and costs.
Unless expressly modified by this Amendment, all other provisions in
the OEM Supply Contract will remain unchanged and in full force and effect.
ATS MEDICAL, INC. SULZER CARBOMEDICS, INC.
By: /s/ Richard W. Kramp By: /s/ Terry L. Marlatt
-------------------------------- --------------------------------
Printed Name: Richard W. Kramp Printed Name: Terry L. Marlatt
---------------------- ----------------------
Title: President/COO Title: President
----------------------------- -----------------------------
<PAGE>
PRICE and QUANTITY SCHEDULES
MINIMUM PURCHASE REQUIREMENTS PER COMPONENT SET
Contract Year(1) # Sets Per Year(2)
---------------- ------------------
Year 2000 *** (plus *** L.D.C. valve sets
ordered in accordance with the
"L.D.C. Clause" below on this
Exhibit B)
Year 2001 ***
Year 2002 ***
Year 2003 ***
Year 2004 ***
Year 2005 ***
Year 2006 ***
Year 2007 ***
PRICES
Contract Year 2000
------------------
*** per equivalent valve set
*** per L.D.C. valve set
Contract Year 2001
------------------
*** per equivalent valve set
Contract Years 2002 - 2007
--------------------------
- ------------------------------
(1) Each "Contract Year" commences on January 1 of the named year
and ends on December 31 of the named year.
(2) Purchase requirements and/or actual purchases for each
Contract Year are independent of those for prior or succeeding
years.
EXHIBIT B
Page 1 - December 29, 1999
*** Denotes confidential information that has been omitted from
the exhibit and filed separately, accompanied by a
confidential treatment request, with the Securities and
Exchange Commission pursuant to Rule 24B-2 of the Securities
Exchange Act of 1934.
<PAGE>
Previous year's price plus inflation adjustment
described below
PRICE ADJUSTMENT
The actual sales price to Manufacturer for Contract Years 2002 through 2007 will
be adjusted each year so that the price reflects the impact of inflation, if
any. To make such adjustment, CMI will use an inflation factor equal to the
12-month average percentage increase in employment cost for "private industry
workers" as reported on "Table 3. Employment Cost Index for total compensation
for private industry workers, by industry and occupational group (Not seasonally
adjusted data)" published by the Bureau of Labor Statistics of the United States
Department of Labor or, if that index should cease to be published, any
comparable category in a comparable index agreeable to both parties. The
inflation factor used for each Contract Year will be that reported as of the
September 30 immediately preceding the commencement of the Contract Year.
EXHIBIT B
Page 2 - December 29, 1999
EXHIBIT 99.3
AMENDMENT 2 TO LICENSE AGREEMENT
This Amendment 2 is entered into as of December 29, 1999, by and
between SULZER CARBOMEDICS INC. ("Company"), a corporation organized and
existing under the laws of the State of Delaware, with its principal office
located at 1300 East Anderson Lane, Austin, Texas 78752 and ATS MEDICAL, INC.
("ATS"), a corporation organized and existing under the laws of the State of
Minnesota with its principal office located at 3905 Annapolis Lane, Minneapolis,
Minnesota.
RECITALS:
The Company and ATS entered into a License agreement dated September
24, 1990, as amended December 16, 1993 (the "License Agreement"). The parties
now desire to further amend that Agreement.
THEREFORE, in consideration of the mutual promises set forth in this
Amendment and other good and valuable consideration, the parties agree to the
following terms.
TERMS:
The following items are hereby added to the License agreement:
<PAGE>
10.7 Neither the Company nor ATS shall enter into any agreement for the
direct or indirect sale, transfer, assignment or conveyance of all, or
substantially all, of the assets of the Company or ATS, as the case may
be, unless the transferee agrees to assume and be bound by the terms of
this License Agreement.
10.8 In the event of any dispute or controversy regarding this License
Agreement, the prevailing party shall be entitled to its reasonable
attorney's fees and costs.
Unless expressly modified by this Amendment, all other provisions in
the License Agreement will remain unchanged and in full force and effect.
ATS MEDICAL, INC. SULZER CARBOMEDICS, INC.
By: /s/ Richard W. Kramp By: /s/ Terry L. Marlatt
-------------------------------- --------------------------------
Printed Name: Richard W. Kramp Printed Name: Terry L. Marlatt
---------------------- ----------------------
Title: President/COO Title: President
----------------------------- -----------------------------
